Austerity hurts consumers in Europe but Asians upbeat

By IBT Staff Reporter07/17/10 AT 10:16 PM

A drop in consumer confidence in Europe amid worries about the region's debt crisis is holding back a recovery in global consumer sentiment and weighing on the broader economic outlook, a survey showed on Sunday.

Sentiment in euro zone states Spain, France and Italy fell between the first and second quarters as European countries drew up austerity measures to tackle debt amid fears of contagion from Greece's debt crisis, the survey by the New York-based Nielsen Company showed.

Global consumer confidence as a result was virtually unchanged in the second quarter from the previous three months despite rising optimism in Asia and Latin America as well as a slight uptick among consumers in the United States.

While the global economy is in better shape than it was nine months ago, the ongoing European debt crisis is a major setback to the global economic recovery anticipated this year, said Venkatesh Bala, chief economist at the Cambridge Group, a unit of the Nielsen Group.

A recovery in consumer spending in the United States would depend on job creation.

In the United States consumers are still focused on repairing their household balance sheets with 45 percent allotting any remaining income (after essential living expenses) to savings and paying off debt, said James Russo, vice president at The Nielsen Company. Until the labor market shows continuous improvement, consumer spending will not be sustainable.

The survey was taken between May 10 and 26, covering 27,000 consumers in 48 countries. The survey, based on consumers' confidence in the job market, status of their personal finances and readiness to spend, did not include debt-stricken Greece or Portugal.

Consumers in India were most bullish globally, followed by Indonesians and Vietnamese.

However, India's survey score of 129 was well below the country's record 137 index reading in the second half of 2006, the highest reading for any country since the Nielsen consumer confidence index was launched in 2005.

Confidence in the latest survey was weakest in Lithuania, which saw its economy shrink 15 percent next year and is now under pressure from the IMF to introduce more austerity measures to tackle a large budget deficit.

Japanese and Koreans were the second and third most pessimistic consumers, bucking optimism in the rest of Asia.

Chinese consumers were seventh most optimistic among countries surveyed and their score was up 1 point from the first quarter. Vietnam saw the biggest jump in confidence from the first three months of the year.

Confidence in the Czech Republic plunged in the second quarter from the first quarter by more than in any other country.